Gold rebounded as some investors deemed a 13 percent plunge over two days to be excessive and an Asian central banker said that policy makers may take the opportunity to buy. Silver also advanced.
The two-day drop for gold was the biggest since January 1980, and prices reached the lowest since January 2011 earlier today. The decline would give central banks an opportunity to buy, Central Bank of Sri Lanka Governor Ajith Nivard Cabraal said in an interview on Bloomberg Television. The Bank of Korea said bullion’s drop isn’t a big concern as the bank’s holdings are part of a long-term strategy for foreign-exchange reserves.
Bullion gained sixfold in the 12-year rally through last year. It’s down in 2013 as the U.S. recovery gained momentum and some Federal Reserve policy makers signaled that stimulus may be scaled back, curbing demand for gold as a haven. U.S. equities reached a record this month. Societe Generale SA said the slump is overdone as quantitative easing will continue.
“A correction of that magnitude begets a fairly robust bounce back,” Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview. “The central bank buying is positive and is definitely providing support.”
Gold futures for June delivery gained 1.5 percent to $1,381.60 an ounce at 9:59 a.m. on the Comex in New York, heading for the biggest gain for a most-active contract since April 5. Prices earlier touched $1,321.50, the lowest since Jan. 28, 2011. Yesterday’s 9.3 percent tumble was the biggest since 1980. Melek said prices will reach $1,500 this year.
Tumble ‘Overdone’
“Everything isn’t looking that rosy, so gold should hold up,” said David Poh, Singapore-based regional head of portfolio-management solutions at Societe Generale Private Banking. “This tumbling over the past few days is overdone. We think a good time to accumulate is at the $1,300 level.”
Futures trading was more than double the average in the past 100 days for this time of day, according to data compiled by Bloomberg. Chicago-based CME Group Inc., owner of the Comex, said in a statement that it will increase margin requirements on gold trading, raising the minimum cash deposit for futures by 19 percent to $7,040 per 100-ounce contract at today’s close.
Gold’s drop has pushed its 14-day relative strength index to 22.4, below the level of 30 that indicates to some analysts who study technical charts that a rebound may be imminent.
The Standard & Poor’s GSCI Spot Index of 24 raw materials fell to the lowest since July earlier today. Data showed yesterday that China’s economy expanded less than economists expected in the first quarter.
Goldman Bearish
Goldman Sachs Group Inc. said April 10 that the turn in the gold cycle was quickening and that investors should sell the metal. The selloff that began last week was sparked by mounting concern that Cyprus would be forced to sell gold from its reserves, “potentially reflecting a larger monetization of gold reserves across other European central banks,” the bank said in a report today.
“Gold is no longer a safe-haven asset,” Brian Jacobsen, the chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said on Bloomberg Television’s “First Up” with Susan Li. “We could actually maybe see a long-term trend of gold trending towards $1,000 in order for it to better converge with other commodity prices.”
ETP Holdings
Holdings in the SPDR Gold Trust, the biggest exchange- traded product backed by bullion, fell to 1,154.34 metric tons yesterday, the lowest since April 28, 2010, data on its website showed. Global ETP holdings are down 9.5 percent this year, compared with gains for products linked to silver, platinum and palladium, data compiled by Bloomberg show.
Billionaire investor George Soros, who called bullion the “ultimate asset bubble” in 2010, cut his stake in the SPDR gold fund by 55 percent in the fourth quarter, while hedge-fund manager John Paulson kept his holding. Warren Buffett, the third-richest person in the Bloomberg Billionaires Index, said last year in his annual letter to shareholders that investors should avoid gold as its uses are limited and it doesn’t have the potential of farmland or companies to produce new wealth.
Gold reached a record $1,923.70 in September 2011 and climbed for a 12th year in 2012 as nations pledged more stimulus to bolster economic growth. Prices fell 19 percent this year through yesterday.
“People may be starting to get a little nervous about whether gold is continuing its run over the last decade or so, where it’s always increased in price on an annual basis,” said Alexandra Knight, a Melbourne-based economist at National Australia Bank Ltd. “They may be getting to the stage where they realize it’s not an ever-increasing asset.”
Silver futures for May delivery jumped 0.4 percent to $23.455 ounce on the Comex. Earlier, prices touched $22, the lowest since Oct. 5, 2010. Yesterday, the precious metal retreated 11 percent, the biggest drop since Sept. 23, 2011.